American Financial Care

Homeowners who are unable to make mortgage payments in the current housing market are facing a lesser-of-two-evils dilemma: let their home go into foreclosure or file personal bankruptcy.

While neither situation is ideal, and possibly avoidable through a mortgage modification, many homeowners are realizing the benefits of chapter 13 bankruptcy.

As the housing market continues to struggle through the recession, it is a decision more and more homeowners may be forced to face.

The foreclosure process is different in each state, but typically a lender (the bank or mortgage holder) will begin foreclosure proceedings following three months of non-payment. The foreclosure notice may arrive in the mail or may be delivered by a sheriff’s deputy or other law enforcement officer.

Using Bankruptcy Protection
By filing chapter 13 bankruptcy, a debtor (the person filing bankruptcy) is given the chance to catch up on debts through a repayment plan. This aspect of the personal bankruptcy code in the United States is especially beneficial to those whose home or other property is at risk of foreclosure or repossession.
When the debtor files the bankruptcy petition with their district bankruptcy court, a court order called the automatic stay goes into effect. The automatic stay prevents any collection actions against assets listed in the bankruptcy petition—including mortgage foreclosure.

Not only does chapter 13 bankruptcy put an immediate halt to foreclosure proceedings (which can only be continued following a separate court hearing), it is designed to allow debtors the chance to repay their debts over a structured period, thus allowing homeowners to stay in their homes.

In a chapter 13 bankruptcy, the debtor enters into a three-to-five-year reorganization of debts through a bankruptcy trustee. As part of the filing process, the debtor must meet with the bankruptcy trustee as well as all creditors (called a 341 Creditors meeting) to establish the payment plan.

Once the repayment plan is established, al l secured debts, such as mortgages and car loans, are repaid by the debtor directly to the creditor, same as before entering bankruptcy. Any late or missed payments may trigger repossession or foreclosure.

Secured debts, such as credit card debt and medical bills, are paid through the bankruptcy trustee. The debtor makes one payment to the trustee, based on the chapter 13 payment plan, and the trustee distributes the funds accordingly.

Any debts accrued after the bankruptcy petition is filed, or inadvertently left off of the bankruptcy petition, must be paid while the debtor is under personal bankruptcy protection. Typically, the petition cannot be amended, and a debtor cannot file for a second bankruptcy.

Chapter 13 Debt Discharge
Chapter 13 bankruptcy is not an option available to all debtors. Debtors must have a regular income, and must agree to make monthly payments to the trustee. If the debtor stops making payments while under bankruptcy protection, the automatic stay will be lifted and creditors may be able to take action, regardless of how much the debtor has paid under the bankruptcy plan.

In addition, bankruptcy courts require debtors to take a Credit Counseling Briefing before filing bankruptcy, and a Debtor Education Course before receiving the debt discharge. While these obligations are relatively simple to fulfill, they are a hurdle that keep some debtors from receiving their discharge, or from filing bankruptcy altogether.

Once all obligations set forth by the bankruptcy court have been fulfilled, the bankruptcy court will issue the debt discharge, for all unsecured debts, legally freeing the debtor of obligation to repay them.
By filing bankruptcy, debtors can work with mortgage holders to halt foreclosure actions and keep their home, hopefully for good.

Mini Bankruptcy Form:

Related posts:

1. Fort Wayne Bankruptcy Lawyer Presents Chapter 7 Pros and Cons
2. Debts That Remain After Chapter 7 Bankruptcy
3. Florrisant Bankruptcy Attorneys Discuss Debt After Chapter 7
4. Florence Bankruptcy Attorneys Help Determine Chapter 13 Eligibility
5. Florence Bankruptcy Lawyers Help Determine Chapter 13 Eligibility

Tags: bankruptcy, chapter 13, personal bankruptcy